Analysis: Bank of Canada loosens grip on what its deputies can say

Louise Egan

5 Min Read

Bank of Canada Governor Stephen Poloz takes part in a news conference upon the release of the Monetary Policy Report in Ottawa July 17, 2013. REUTERS/Chris Wattie

OTTAWA (Reuters) - A candid and forward-looking speech from the No. 2 at Canada’s central bank could signal a period of greater transparency under new Governor Stephen Poloz, and a move away from a tightly scripted communications policy that contrasted with that of the U.S. Federal Reserve.

The Bank of Canada has traditionally insisted that all members of its governing council deliver the same message to avoid wrong-footing financial markets, while Fed officials have often issued conflicting views on monetary policy, confusing markets in the process.

But Tuesday’s speech by Bank of Canada Senior Deputy Governor Tiff Macklem broke with the Canadian practice of leaving it to the governor to break news.

Macklem provided updated forecasts for Canadian economic growth and the composition of that growth, in a first, especially for a deputy, outside the bank’s designated policy announcement dates.

In another first, some economists saw him as slightly less bullish than Poloz, who gave a surprisingly upbeat speech last month on how the economy was at a “tipping point” between improving confidence and expanding capacity.

Thirdly, the central bank gave greater weight to Macklem’s views by conducting a media lockup before his speech, giving financial reporters a 90-minute headstart to digest the comments and prepare their reports. Until now, lockups have been reserved for the governor’s speeches.

“I do indeed believe that it highlights an important shift in the bank’s communications strategy,” said Doug Porter, chief economist at Bank of Montreal.

Nobody sees the changes as the first step toward a Fed-like communications model, but it will force markets to take the bank’s deputies more seriously.

“It will ramp up the importance of speeches, including from deputy governors, in the future, while somewhat reducing the impact of the monetary policy report since forecast changes may be largely signaled in advance,” Porter said.

Craig Wright, chief economist at Royal Bank of Canada, suspects the bank wanted to provide greater guidance than usual on its plan to eventually exit from ultra-low interest rates, and preferred not to wait until its next scheduled announcement on October 23.

“To me, this is a first in recent memory and is surprising,” Wright said. “In a period of uncertainty with respect to the economy and the challenges with exiting from a position of great accommodation, more transparency and communication is better than less,” he said.

The Bank of Canada differs from the Fed, the Bank of England and others in that its six-member governing council does not vote on policy decisions, nor does the bank release minutes of their meetings. They reach decisions by consensus, with the governor bearing ultimate responsibility.

The Bank of Canada governor is the chief voice of the bank and deputies have echoed what their boss has said in their less-frequent public appearances.

But Poloz said in an interview with the Globe and Mail last week that he wanted to give his deputies a greater role.

It’s not clear whether the changes will permit internal disagreements to be aired in public.

Indeed, Wright sees no major difference between Macklem and Poloz in terms of their outlooks for Canada, calling them “similar in substance but different in style”.

But others did detect a difference of opinion. Jimmy Jean, economic strategist at Desjardins Capital Markets, concluded that Macklem “clearly is at no ‘tipping point’ of jubilation over a Canadian business investment miracle,” referring to Poloz’s September 18 speech.

“In any event, if there is even a subtle whiff of what would be unusual public disagreement between two top Canadian central bankers, it remains at a remarkable distance from what one can hear on any given day in the U.S., from folks of the likes of (Dallas Fed President) Richard Fisher or (Richmond Fed President) Jeffrey Lacker.”

Fisher had called for the Fed to start winding down its $85-billion-a-month bond-buying program in September. Lacker, one of the central bank’s most hawkish officials, said last week he saw no reason not to start tapering in October but that the Fed might find it hard to do after surprising markets by doing nothing in September.